1987 (9) TMI 14 - HC - Income Tax

Summary

Issues Involved:
1. Liability of padding solutions to excise duty.
2. Mistake of law in payment of excise duty.
3. Plaintiffs' entitlement to refund.
4. Doctrine of unjust enrichment.
5. Jurisdiction of civil court.
6. Limitation period for refund claim.

Detailed Analysis:

1. Liability of Padding Solutions to Excise Duty:
The plaintiffs, engaged in manufacturing padding solutions, paid Rs. 1,68,212.78 as excise duty between July 5, 1972, and March 31, 1974. Subsequently, a trade notice in April 1977 clarified that padding solutions were not subject to excise duty under the Central Excises and Salt Act, 1944. Thus, the payment was made under a mistake of law.

2. Mistake of Law in Payment of Excise Duty:
The plaintiffs paid the excise duty based on the incorrect assumption that padding solutions were liable to excise duty. This mistake was later clarified by the Excise Collectorate's trade notice. The trial judge confirmed that the payment was made under a mistake of law.

3. Plaintiffs' Entitlement to Refund:
The plaintiffs sought a refund of the excise duty paid under a mistake of law. Despite the defendants' contention that the plaintiffs had not paid the amount under protest, the trial judge held that the defendants were legally bound to refund the amount to the plaintiffs. The trial judge also ruled that the suit was not barred by limitation, considering the period of notice under section 80 of the Code of Civil Procedure.

4. Doctrine of Unjust Enrichment:
The defendants argued that refunding the amount would unjustly enrich the plaintiffs, who had collected the amount from their customers. However, the court held that the doctrine of unjust enrichment could not be used as a defense against refund claims for taxes collected without legal authority. The court referenced previous judgments, including Parle Products Ltd. v. Union of India, and Rapidur (India) Ltd. v. Union of India, which established that the state must refund amounts collected without legal authority, irrespective of whether the plaintiffs had passed on the duty to their customers.

5. Jurisdiction of Civil Court:
The defendants contended that the civil court lacked jurisdiction to entertain the suit, citing section 40 of the Central Excises and Salt Act, 1944. However, the court clarified that section 40 only provides immunity for acts done in good faith under the Act and does not cover the collection of illegal duty. The court affirmed its jurisdiction to hear the suit and grant relief for amounts collected without legal authority.

6. Limitation Period for Refund Claim:
The plaintiffs' application for a refund was initially rejected due to being filed beyond the six-month limitation period prescribed by the Central Excise Rules, 1944. However, the trial judge ruled that the suit was not barred by limitation, considering the period of notice under section 80 of the Code of Civil Procedure.

Conclusion:
The appeal by the Assistant Collector of Central Excise and the Union of India was dismissed. The court upheld the trial judge's decree for the refund of the excise duty paid by the plaintiffs under a mistake of law. The doctrine of unjust enrichment was rejected as a defense, and the civil court's jurisdiction to hear the suit was affirmed. The bank guarantee provided by the plaintiffs was ordered to be discharged effective November 23, 1987.